What Are The Biggest Tax Mistakes You Can Make As A Small Business Owner?

For small business owners in Stockport, there are plenty of things to worry about, such as sales, customers, staff etc. But there is one area of running a business that consistently causes headaches and stress. The issues around navigating the complexities of the UK tax system.

Understanding Tax Management

It’s safe to say that HMRC don’t make tax management easy to understand. Managing your tax obligations and correctly handling your money is a complicated process. Accountants train for many years to become specialists, and yet, many business owners are left on their own to deal with their tax, with little or no guidance or support.

As a result, in the rush for January, many small business owners make mistakes, whether it’s filling in forms incorrectly or recording their expenses in the wrong way.

The problem with simple mistakes is that they can prove costly, as HMRC is tightening up on fines for incorrect tax returns. 

We have managed the accounts of small businesses for many years, and know exactly what mistakes business owners make. Here are some common tax mistakes we see business owners make on a regular basis.

1. Forgetting to include all sources of income

It’s easy to miss an income source, such as interest being received in the year. HMRC knows if you have an interest earning account or perhaps an offshore bank account. Failure to declare income will trigger an investigation as this might be where you are holding undeclared profits. Any investigation is time consuming and can be costly.

2. Not explaining unusual variations

Use the white space to explain it any variations. HMRC is then far less likely to start an enquiry. There’s no need to go overboard with the information you give, but if you have an anomaly you need to give straight, honest and simple explanations.

3. Claiming for expenses that cannot be claimed

Expenses rules on what  can/cannot be claimed are not straightforward. Expenses have to  meet the “wholly and exclusively for the purpose of trade” test.

There are certain areas that attract more attention from HMRC than others, these include:

  • Legal and professional expenses
  • Repairs and renewals
  • Entertaining
  • Stock
  • Preaovisions and accruals
  • Resrch and development
  • Drawings
  • Pensions
  • Employment expense
  • Termination payments

Where drawings are comparatively low, HMRC may wonder whether there have been undeclared cash sales which have been used to fund living expenses. If you know the rules on expenses, you can insure that you don’t end up with a full blown and costly investigation.

4. Estimation and using round sum figures on the return

If you input too many round sum figures, HMRC will be suspicious that you do not keep proper records. They can then ask for evidence to substantiate the amounts on the return.

If the taxman can show that balancing figures or estimates have been used, or if there are no invoices for some of your expenses, there can be extra additions to taxable profits.

5. Not adding foreign income

One of the most common tax return mistakes, missing out foreign income is now a criminal offence. Proceed carefully and use a checklist to ensure nothing gets missed. Or make use of an accountant to ensure you get it right.

6. Not seeking help to avoid tax return mistakes

Some years ago, HMRC told us that “tax doesn’t have to be taxing”. The reality is that completing your tax return is not straightforward. And getting it wrong can lead to unwanted attention from HMRC and cost.

If you are unsure, seek help and make use of an accountant who can remove the risk. Don’t let your finances suffer. Get in touch with us today we’ll help support your tax management.

News / Blog


Understanding Bridging Loans

A rather common question that is asked by many who are new to the concept is, “What exactly can you…


Five things to Consider before Applying for Development Finance

This week, we shall be discussing the five important questions you will need to ask yourself before choosing to give…


The Rise of the Flexible Workspace

As we are living in a society that is forever changing, business workspaces are equally subject to change as well.…


Planning an Exit Strategy for your Small Business

If you own a small business, or you own shares in someone else’s small business, it is likely that you…